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Vaccines Are Coming, but Can Hotels Hang On Until Then?

Jan 01, 2021 by Maurie Backman
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At long last, there's hope on the coronavirus vaccine front. The FDA has granted emergency use authorization for two different formulas -- the Pfizer (NYSE: PFE) and BioNTech (NASDAQ: BNTX) effort as well as Moderna's (NASDAQ: MRNA) version, which draws on similar technology. Both vaccines presented with high efficacy ratings based on clinical trials, and the hope is that they'll work to quash the pandemic once they become widely available.

Initially, only high-priority individuals will be eligible to receive a vaccine -- healthcare professionals, first responders, essential workers, and the elderly. But the hope is that by the second quarter of 2021, there will be enough doses to vaccinate any American who's willing to roll up his or her sleeve.

That's good news for hotels, which have been starved for revenue this year to the point where 25% are now at risk of foreclosure. Layoffs have also been rampant in the hotel industry as properties have grappled with unprecedented vacancy rates from both sluggish leisure travel as well as business trips.

Once a vaccine is no longer a hot commodity, travel is apt to become a safer notion, which means more people will feel comfortable packing their bags and booking rooms. The question: Can hotels survive what could be a very long winter ahead?

Getting through another rough patch

Normally, hotels see an uptick in bookings during the holiday season. This year, however, many people are scrapping travel plans due to safety concerns and, in some cases, financial constraints. Quarantine mandates are also causing a pullback in travel, as many people don't have the means to shelter in place for days or weeks upon arrival in a new city.

The result? Hotel revenue could plummet in a very big way by the time 2020's fourth quarter wraps up. In fact, the percentage of occupied hotel rooms in the fourth quarter is projected to drop to 41.5%, according to CBRE Hotels Research. That percentage sat at 44.2% one quarter prior. Meanwhile, the average revenue per room declined in October to 49% less than it had been the year before, reports CoStar.

While some lower-end hotels -- notably, extended-stay properties -- have fared reasonably well during the pandemic, high-end properties have struggled immensely. Many luxury hotels derive revenue not just from bookings but also from the gourmet restaurants they house. But since in-person dining has been restricted for the better part of 2020, that's been a real problem.

All told, many hotels are dealing with a massive cash crunch right about now, and while bookings and revenue are apt to increase during the latter part of 2021, the fear is that some properties may not have the means to hang in there until that happens. While hotels can do their best to cut costs and reduce staff in an effort to stay afloat, they still need revenue to operate. And while some may have the means to get through the first part of the year until a travel surge kicks in, others may not so much as survive the winter.

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Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.